Prodi Says Europe Hurt by Too Much Austerity Amid Very High Euro

Romano Prodi, former European Commission president, has been in the news lately after a former senator who backed his previous government told prosecutors that he had accepted 3 million euros ($3.9 million) from former Prime Minister Silvio Berlusconi to switch sides and help bring down Prodi, whose government fell in 2008. Photographer: Jerome Favre/Bloomberg

March 15 (Bloomberg) -- Former Italian Prime Minister
Romano Prodi said fiscal austerity measures in Europe have been
excessive and called the euro too high.

“The euro has a very high rate of exchange,” Prodi, a
former European Commission president, said in an interview with
Sara Eisen airing on Bloomberg Television today. “I do think
that it’s stronger than needed.”

The currency shared by 17 European nations is about 14
percent overvalued relative to the U.S. dollar, based on
differences in consumer purchasing power, according to data
compiled by Bloomberg. The euro bought $1.3004 late yesterday in
New York, about 6.4 percent higher than its average since 2000.

Prodi has been mentioned as a possible candidate to replace
President Giorgio Napolitano when his term expires in May. In a
separate interview with Bloomberg News in Washington yesterday,
Prodi dismissed speculation that he may be Italy’s next
president, saying he had alienated fellow politicians over the
years with his strong positions.

In Italy, where the president is elected by parliament,
Prodi said the person chosen is not the one who wins the most
votes, but rather the person who elicits the fewest vetoes.

“I have always been -- let’s say -- very strong-minded in
my political opinion, I always take positions,” Prodi said. “I
think that is not a concrete probability that the majority will
vote for me.”

Eurogroup Talks

Prodi spoke ahead of a two-day Brussels summit of officials
who may endorse plans for “structural” assessments of national
budgets, according to a draft statement, using code for granting
countries such as France, Spain and Portugal extra time to bring
down deficits.

Following the inconclusive popular vote on Feb. 24-25 for
members of parliament, in which no party won a majority in the
two houses, Italy’s new lawmakers are scheduled to meet for the
first time today to begin electing leaders of both chambers.
Party leaders will seek to build a majority and form a
government.

Investors have pushed up the country’s bond yields on
concern that political gridlock will undermine the economic
reforms of the outgoing government of Prime Minister Mario
Monti. Italy’s 10-year bond yield has jumped almost 20 basis
points since the vote to 4.638 percent.

As the developed nations around the world look for means to
revive the economic growth, finance ministers and central
bankers from the Group of 20 pledged not to target exchange
rates to increase their competitiveness and boost exports.

European Recession

The euro-area economy will shrink in back-to-back years for
the first time, driving unemployment higher as governments,
consumers and companies curb spending, the European Commission
said on Feb. 22.

Gross domestic product in the 17-nation region will fall
0.3 percent this year, compared with a November prediction of
0.1 percent growth. Unemployment will climb to 12.2 percent, up
from the previous estimate of 11.8 percent and 11.4 percent last
year.

“The austerity was, in my opinion, necessary in the
beginning, it worked for a while, now it’s gone too far,” Prodi
said.

Italy, the euro region’s third-biggest economy, shrank 2.4
percent last year as the country’s budget deficit narrowed to
match the European Union limit of 3 percent.

Monti’s Policies

Despite the current gridlock and failure to form a new
government, Prodi expressed confidence that economic measures
undertaken by Monti will survive the gridlock. “I don’t think
there will be any repeal of the Monti reforms,” he said.

Prodi has been in the news lately after a former senator
who backed his previous government told prosecutors that he had
accepted 3 million euros ($3.9 million) from former Prime
Minister Silvio Berlusconi to switch sides and help bring down
Prodi, whose government fell in 2008.

Asked about the investigation of Berlusconi for corruption,
Prodi said if true, it would be “one of the biggest scandals”
imaginable in Italian politics.

“Now it is in the hands of the judge,” Prodi said. If the
allegations are proven true, “bribery is one of the most
serious violations of democratic life. To pay a member of
parliament to change their vote is one of the biggest scandals,
so I am just awaiting the decision of the judge.”